The economist

Rosa Luxemburg was one of the greatest revolutionary leaders of the 20th century. She is best known as an active fighter in the struggle for socialism, but she also deserves recognition for her theoretical contribution to Marxism. She was born in Poland in 1870, and became active in revolutionary politics at a very young age. Still only 16, she escaped the authorities in Poland and settled in Germany. Within a few years she was playing a leading role in the biggest Marxist organisation in the world, the German Social Democratic Party (SPD).

Rosa Luxemburg taught at the organisation’s schools from 1906 to 1913, where she introduced thousands of workers to Marxist economics. She was hugely talented at popularising Marx’s theories, but it was not in her nature to be an uncritical cipher, handing down Marxist shibboleths to the eager, receptant masses. Luxemburg was a fiercely independent thinker, with great intellectual as well as personal courage. She was still in her twenties, a woman and a foreigner to boot, when she first locked horns with the internationally renowned leaders of the SPD. She was ever-vigilant in her defence of the revolutionary spirit of Marxism against those in her own organisation who sought to make their peace with the system. And Luxemburg aimed to develop Marxism to account for the changes in the world system that had occurred since the death of Marx in 1883. The Accumulation of Capital, first published in 1915, was both a major theoretical work and a political intervention, part of her ongoing battle to reassert the validity of revolutionary Marxism. [1]

In 1912 Luxemburg was in the process of writing a popular pamphlet, An Introduction to Political Economy, when she ran into difficulties. She realised the fault lay not in her ability to represent the issues before her, but in Marx’s original formulation, which was incomplete. She wrote, ‘If we should ask why Marx’s Capital affords no solution to this important problem of the accumulation of capital, we must bear in mind above all that this second volume is not a finished whole but a manuscript that stops half way through.’ [2] It is typical of Luxemburg that she rose to the challenge and sought to resolve the problem herself. She was undaunted by the prospect of attracting criticism from the luminaries of the party – in fact, she probably relished the idea. She certainly relished the work itself. In a letter to a friend, she said:

The period in which I wrote the Accumulation belongs to the happiest of my life. I lived in a veritable trance. Day and night I neither saw nor heard anything as that one problem developed so beautifully before my eyes. I don’t know which gave me more pleasure: the process of thinking ... or the literary creation with pen in hand. [3]

The debate

The problem she saw in Volume Two of Capital revolved around a central question for all socialists – can capitalism go on forever? Like Marx, Luxemburg understood that capitalism was not the end of human development, but a historical system that would give way to change sooner or later. Capitalism had created wealth on an unimaginable scale but it was a system based on huge contradictions. Following Marx, Luxemburg described the anarchy of the system:

Capitalist production is primarily production by innumerable private producers without any planned regulation. The only social link between these producers is the act of exchange. In taking account of social requirement reproduction has no clue to go on other than the experiences of the preceding labour period. These experiences remain private, not integrated into a social form. They do not always refer positively and directly to the needs of society. [4]

Luxemburg writes of how it is nearly impossible for different elements of the economy to balance each other, how the ‘swings from overstrain to exhaustion’ that shake the economy, and how ‘glut or shortage are bound to occur which lead to gluts and shortages in all other areas’. Yet, despite the anarchy of private production, the system had expanded and grown. The problem Luxemburg saw in Marx’s account was identifying the factors that stimulated that massive development of the system.

In particular, she focused on what impelled capitalist concerns to expand beyond the borders of one country, to conquer other areas and forcibly incorporate the whole world into one system. For Marx, the answer lay in understanding that individual capitalists are compelled to seek ever greater profits by the constant competition at the heart of the system. This inbuilt drive for capitalists to accumulate ever greater profits sent capitalism across the globe, a view Marx spelt out powerfully in The Communist Manifesto. Marx’s analysis provides a starting point from which to understand the global reach of capitalism. But Marx never developed his views on imperialism in any great detail, and much of what he did write was unavailable before 1914.

A generation later, Luxemburg was confronted with these developments more sharply than Marx was. Uncovering the economic roots of imperialism was an urgent task for socialists wanting to oppose the imperialist adventures of their own ruling classes. The ‘scramble for Africa’, for example, meant that within just 30 years, from 1880 to 1910, 10 million square miles and 110 million Africans became the subjects of five European powers – Germany, Italy, Portugal, France and Britain plus the king of Belgium. Imperialism meant the conquest of less developed areas of the globe. It also meant a massive increase in tension and conflict between the European powers themselves, eventually exploding into world war in 1914. Luxemburg sought to give a firmer theoretical basis to account for this rivalry by developing Marx’s analysis. She could not accept that the irresistible impulse towards imperialism was simply the result of individual capitalists competing in the search for greater profits. She argued capitalism was driven to expand into non-capitalist areas to protect its very existence.

How does capitalism expand?

In The Accumulation of Capital, Luxemburg adopted the models of the capitalist system used by Marx in Volume Two of Capital. This book analysed the circuits of capital, the means by which capital reproduced itself, rather than the relationship between capital and labour or the cause of crises within the system. So Luxemburg’s theory is concerned with the circuits by which capitalists produced commodities, realised the value in those commodities by selling them and then reinvested that profit into the next round of production. She puts at the heart of her work the system of capital accumulation, the realisation of the surplus value produced by the exploitation of the workforce.

Luxemburg argues in a series of equations that the growth of capitalism is severely restricted and ultimately destroyed by the lack of markets for the goods produced. As the system expanded, more and more goods would be produced. The capitalists would run out of people to buy the growing number of goods for sale unless demand increased as production increased. But where would this increased demand come from? This was the question she felt Marx did not answer satisfactorily.

Marx conducts his argument in Volume Two by stripping away layers of analysis to focus on ‘pure’ abstract capitalism. He describes a model of ‘simple reproduction’ in which all the surplus value produced in the system is spent on consumption by the capitalists, who would enjoy a luxurious lifestyle. In this system things would be produced according to how useful they were to the capitalists. The model could never actually exist, because under it there would be no surplus being pumped back into the system, no accumulation of capital and so no growth. Luxemburg explained, ‘If all the goods produced are swallowed up by human consumption, there can clearly be no room to spare in the total social product for such unconsumable means of production as tools, machinery, new materials and buildings.’ But the model of ‘simple reproduction’ helped to clarify key aspects of the system.

After starting with this model of simple reproduction, Marx moved on to describe a model of ‘expanded reproduction’. In this model the surplus produced is not simply consumed by the capitalists. Rather, the surplus is divided between what the capitalists get for their luxury consumption, what workers get to consume, paid in the form of wages, and accumulation for further production, spending on new materials and machinery, for example. Luxemburg points out:

The essential difference between enlarged reproduction and simple reproduction consists in the fact that in the latter the capitalist class and its hangers-on consume the entire surplus value, whereas in the former a part of the surplus value is set aside from the personal consumption of its owners, not for the purpose of hoarding, but in order to increase the active capital, i.e. for capitalisation. [5]

The individual capitalist doesn’t care if he or she produces machinery that is used in further production, or goods to be consumed, like cars, CDs or videos. All the individual capitalist is concerned about is finding a market for their goods, and being able to buy the means of production and labour power to produce the next round. But for the system as a whole it is vital that enough means of both production and consumption are produced to enable the system to continue. Marx explained this by making a theoretical division in the economy, between two ‘departments’. Department One produced the means of production, such as machinery and equipment. Department Two produced commodities for consumption, such as food and clothing. The balance between the two departments had to be maintained in every area of the economy for reproduction to take place.

Marx’s system of expanded reproduction depended on the relationship between Departments One and Two. The quantities of means of production produced in Department One had to match the demand for the goods produced in Department Two for the system to function smoothly. It is here that Luxemburg thought she spotted a flaw in Marx’s model. To create a surplus, the value in commodities had to be ‘realised’ – the commodities had to find a market and be sold. Capitalists themselves would buy some goods and workers would buy others. But for the system to grow, some of the surplus has to go on accumulation, not just on consumption. Where, Rosa asked, did the extra demand that could spur the creation of a surplus to be used for accumulation come from?

The workers could not provide it. They are paid out of the pockets of the capitalists, so the money they spend can be considered a displacement of the capitalists’ money. The capitalists cannot sell their goods to each other purely for consumption as that would be going back to simple reproduction, with no surplus directed into accumulation. Nor could ‘third persons’, who are neither capitalists nor workers, provide the demand. Priests, civil servants, landowners, etc. were also invariably paid out of the pockets of the capitalists or, via taxes, the pockets of the workers.

Luxemburg also argued that capitalists could not buy from each other the additional means of creating wealth to be directed towards accumulation, the materials and machines to produce a surplus beyond that required for consumption. If capitalists bought the means of production from each other and increased production, she reasoned, there still would be no one to buy the next, even bigger, round of goods produced. She made this point clear in Anti-Critique, written to defend her theory from its critics while she was in prison in 1915. She wrote that if capitalists were each other’s consumers:

… we have before us a merry-go-round which revolves around itself in empty air. That is not capitalist accumulation, i.e. heaping up of money capital, but the opposite: production for the sake of production, thus, from the standpoint of capital, utter nonsense. [6]

Luxemburg concluded that the part of value required for accumulation could only be realised if it was bought by people outside the capitalist system, from non-capitalist areas of the world. The ‘realisation of surplus value for accumulation is impossible in a society in which there are only capitalists and workers’. [7] This meant it was necessary to drop the assumption that capitalist expansion could go on forever, and create a stable environment of prosperity and growth. She argued that the process of itself made it impossible to achieve equilibrium between the different sectors of the economy. An expansion of the amount of goods produced in Department One would mean more factories, more machines and more consumer goods produced. But the increase could never be matched by a growth in demand for the increased amount of goods produced in Department Two.

This means that the capitalist system is locked in an inescapable contradiction. It depends on non-capitalist markets to realise the value on which it depends. But in forcing its commodities on such non-capitalist areas, capitalism draws them into their own system and destroys them. So Luxemburg argues:

Capital cannot accumulate without the aid of non-capitalist organisations, nor, on the other hand, can it tolerate their continued existence side by side with itself. Only the continuous and progressive disintegration of non-capitalist organisations makes accumulation of capital possible.

Luxemburg was not trying to break from Marx’s analysis. She was trying to develop the perspective he had established. For example, in focusing on the question of lack of demand as a cause of crisis, Luxemburg was following what Marx wrote in Capital Volume Two. Marx placed importance on a lack of demand as a key factor in precipitating crises. For example, Marx stressed, ‘The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of the capitalist production to develop the productive forces in such a way that only the absolute power of consumption of the entire society would be their limit.’

But Marx never dismissed the possibility of ‘production for production’s sake’ in the way Luxemburg did. Marx explained how under capitalism production is not geared towards meeting any identifiable need. Production is geared towards exchange. Capitalists are not motivated by a desire to increase consumption in society. They are only interested in making profits: ‘Accumulate! Accumulate! That is Moses and the prophets,’ wrote Marx. In Volume Three of Capital Marx described how this very drive to accumulate profits led to a tendency for the rate of profit to fall. The more the capitalists invested in machinery to increase their profits, the more they drove the very source of those profits, the living labourers, out of the process. It was this, later Marxists would argue, that was key to the inability of capitalism to go on expanding forever.

History of crises

Luxemburg stood out against the prevailing economic theories of her day, which described the smooth ebbs and flows of production, value and profits through a system ordered by supply and demand. As well as opposing the open apologists of capitalism, she was challenging the tide of economic theories swelling in her own organisation which were moving away from criticising capitalism. Not surprisingly, Accumulation attracted many hostile criticisms from among her comrades in the SPD. Leading SPD members like Karl Kautsky abandoned Marx’s assertion that capitalism was a fatally flawed system. He firstly argued, wrongly, that Marx assumed capitalism would simply break down under the weight of its own contradictions, and then disproved such a notion by referring to the fact that capitalism had not collapsed. In 1927 he concluded, ‘It is no longer possible to maintain that the capitalist mode of production prepares its own downfall through the very laws of its own development.’ Kautsky dismissed Luxemburg’s argument as yet another ‘hypothesis that attempts to deduce the ineluctable necessity for a final economic breakdown of capitalism from the conditions of its process of circulation – despite, or rather precisely because of its expansion of the productive forces – in direct opposition to Marx who proved the exact opposite in Capital Volume Two’. [8] Eduard Bernstein also argued, wrongly, that Marx believed capitalism would simply break down. He wielded this supposed breakdown theory as a club over the heads of orthodox Marxists. Other economists, like Tugan-Baranovsky, argued that Marx’s schemes in Volume Two of Capital proved that Marx himself was convinced that capitalism could escape crises and go on forever.

That is why Luxemburg’s insistence on the contradictions within capitalism and the crises inherent in the system was so vital. By challenging Marx’s scheme, she was trying to rescue his work from the revisionists who misrepresented him to support their own, reformist, theories. To reassert the crisis-prone nature of capitalism, Luxemburg went back to earlier economists like J.C.L. Simonde de Sismondi, a figure dismissed a little abruptly by Marx. But Luxemburg revisited Sismondi because he had argued that capitalism was a historical system that would become ‘doomed’ by its self contradictions. She says, ‘The first grave doubts as to the divine character of the capitalist order came to bourgeois economists under the impact of the crises of 1815 and 1818. At the same time England was hearing the desperate cry of the workers.’ [9] And she quotes, at some length, Sismondi’s searing indictment of early capitalism:

What is the fruit of this immense accumulation of wealth? Have they had any other effect than to make every class partake of care, privation and the danger of complete ruin? Has not England, by forgetting men for things, sacrificed the end to the means? There can only be luxury if it is bought with another’s labour. A time will come, no doubt, when our descendants will condemn us as barbarians because we have left the working classes without security, just as we already condemn as barbarian the nations who reduced those same classes to slavery. [10]

She gives some sparkling accounts of the debates between Sismondi and other important figures, like Ricardo and Malthus.

Luxemburg continues her survey of economists critical of capitalism with Robertus, Struve, Bulgakov, Tugan-Baranovsky and Vorontsov-Nikolayon. This list can sound daunting to those not familiar with the history of debates in Marxist economics. The chapters, however, are interesting both for the development of her argument and for what it shows about the relationship between historical upheavals and new ideas. For example, she explains how Robertus, writing in the 1830s and 1840s, developed his understanding of capitalism in relation to advances in the working class movement: ‘The risings of the Lyons silk weavers and the Chartist movement in England were vastly different from the shadowy spectres raised by the first crisis, and the ears of the bourgeoisie were made to ring with their criticism of the most wonderful of all forms of society.’ [11]

Robertus wrote:

Because of their paltry incomes, five sixths of the population are not only deprived of most of the benefits of civilisation, but are in constant danger of the most terrible outbreaks of the real distress to which they sometimes succumb. Yet they are the creators of all the wealth of the society. Their labours begin at dawn and end at dusk, continuing even after night has fallen – but no exertion can change this fate. Hitherto it might have seemed as if all this suffering were necessary to the progress of civilisation, but now that a series of the most wonderful discoveries and inventions have increased human labour power, there are prospects of changing these grim conditions. [12]

These chapters in Accumulation are not just an interesting historical diversion. Luxemburg reasserts that capitalism is bound to be torn apart by its own contradictions because she wants to insist upon the continuing possibility of socialist revolution. She insists that capitalism ‘proceeds by assimilating the very condition which alone can ensure its own existence’.

Imperialism and conquest

Luxemburg believed her analysis could explain the rapacious drive of modern imperialism. This was the great strength of her analysis – she demonstrated that imperialism was rooted in the dynamics of the accumulation of capitalism itself. For Luxemburg, ‘imperialism was the political expression of the accumulation of capital in its competitive struggle for what remains still open of the non-capitalist environment’. [13] The life and death search for non-capitalist markets was ‘the reason for the contradictory behaviour of capitalism in the final stage of its career: imperialism’. [14]

Her analysis of the economic roots of imperialism had been the accepted position in the SPD and was outlined in the Erfurt programme, the SPD’s 1892 manifesto. Karl Kautsky argued in 1884 that capitalism needed colonies as markets for their goods: ‘as sales markets, colonies have become a condition of existence for capital’. But by the time Accumulation was published, Kautsky was making a theoretical distinction between industrial capitalism and finance capitalism. He argued that industrial capitalists had nothing to gain from imperialism and sought peace and stability, not militarism and war. Kautsky argued that capitalism could evolve into huge cartels and monopolies that could themselves evolve into an era of peaceful ‘supra-imperialism’. In stark contrast, Luxemburg demonstrated that imperialism was not a policy pursued by one or other capitalist, but was rooted in capitalism itself: ‘There is no doubt that the explanation for the economic roots of imperialism must be deduced from the laws of capital accumulation.’

For Luxemburg, imperialism was not an abstract notion important only in demonstrating the necessity of socialist revolution. It was an atrocity perpetrated by savage colonial conquest. Section three of Accumulation gives a vivid account of how ruthlessly capitalism carries through its imperative to expand into non-capitalist areas. It attacks and destroys what Luxemburg calls the ‘natural economies’ of non-capitalist societies that were based on simple commodity production: ‘Capitalism must always and everywhere fight a battle of annihilation against every form of natural economy it encounters, whether this is a slave economy, feudalism or primitive communism.’ These, she writes, have no choice but to resist to the death, to ‘exhaustion or extinction’. Thus ‘military occupation, punitive raids and native risings become the order of the day’. The natural resources of the area are seized and its labour power ‘liberated’ so it can be exploited by the capitalists. Luxemburg points out how capitalism uses massive force to achieve what would take centuries of peaceful integration to secure. Accumulation carries many powerful examples of this process of domination, of the British in India, of the French in Algeria and of the Opium Wars in China. Luxemburg described how capitalism also transforms ‘peasant economies’ based on single commodity production. This, she says, is not peaceful or gradual, but is achieved through ‘oppressive taxation, war, squandering and monopolising of a nation’s land’. To illustrate this process, Luxemburg draws on the settlers in North America and the Boers in South Africa in chapter 29.

Anyone familiar with Mike Davis’s book, Late Victorian Holocausts will find here the same horrific events used in an equally powerful condemnation of imperialism. Imperialism drew non-capitalist areas into the system, but this was not the inevitable victory of a superior society over an inferior one. Imperialism wreaked destruction on other, more ancient, civilisations such as that of China:

Every European advance was marked not only with the progress of commodity exchange, but by the smouldering ruins of the largest and most venerable towns, by the decay of agriculture over large rural areas and by intolerably oppressive taxation for war contributions. There are more than 40 Chinese Treaty Ports – and every one of them has been paid for with streams of blood, with massacre and ruin. [15]

Another important dimension of Luxemburg’s argument is the role played by militarism. Militarism is a feature of capitalism at every phase of its development. It is a ‘weapon in the competitive struggle between capitalist countries for areas of non-capitalist civilisation’. More importantly, she argues that state spending on arms can itself play a role in the accumulation of capital: militarism ‘is in itself a province of accumulation’. Luxemburg explains, ‘The demand of the state which arises has the lure of a new and attractive sphere for realising surplus value’. [16] She does not develop her argument, but it clearly contains seeds of the theory of the permanent arms economy that developed during the late 1950s to explain the long boom in the economy in relation to massive state spending on arms.

The assessment

Rosa Luxemburg’s argument that capitalism could not exist without non-capitalist markets did not win much support. Her most effective critics pointed out that Luxemburg confused the priorities of individual capitalists with those of the system as a whole. Capitalists can and do buy each other’s commodities, such as equipment and machinery, in order to increase their own ability to produce. Luxemburg argued this would imply that ‘human consumption becomes increasingly unimportant, and production more and more an end in itself’ and was implausible. But the system is not directed at increasing the consumption of its workers. It is aimed at making profit, and if demand exists, whether it comes from workers, capitalists or ‘third persons’, capitalists will find ways to profit from it. If capitalists can make a profit by making machines that make machines that make machines, they will. Theoretically, such production could go on forever, generating more and more demand. But there are many factors that work against this actually happening in the anarchic world of the real economy.

In addition, capitalism has consistently identified and created new needs, new possibilities for markets within the system. Tasks once done by private individuals, like cooking, making clothes and entertaining, are now commodities which are bought and sold on the market. Capitalists are quick to exploit what Marx called ‘the multiplication of needs’.

Her book was a very valuable defence against the political accommodations with the system being sought by some within her party. However, other Marxists took the debate in more fruitful directions than she did. One of her most important critics was the Russian revolutionary Nikolai Bukharin. He grasped more clearly than Luxemburg how the concentration and centralisation of capital led to closer ties between capital and nation-states and, therefore, to a new stage in the development of capitalism, imperialism. Luxemburg never developed the role of monopoly capitalism in the drive towards imperialism and war.

In addition, while Luxemburg produced a suggestive and challenging account of Volume Two of Capital, she never engaged as deeply with Volume Three, published in 1894, where Marx outlines his theory of crisis. Luxemburg argued that a lack of demand would produce crises within the system. Marx understood that this was a key element in the contradictions within capitalism. But he also argued that the key factor was the tendency for the rate of profit to fall. As individual capitalists invested in machinery to increase their productivity, across the whole system the source of profits, living labour, was driven out of the system. This led to a tendency for the rate of profit to fall, for the profitable as well as the less profitable. It was this that enabled him to proclaim that the barrier to capital was capital itself.

The inclusion of Luxemburg’s The Accumulation of Capital in the Routledge Classics series is very welcome. She richly deserves to be considered alongside the other ‘great minds’ in the series. Luxemburg’s book, though flawed, is a major contribution to Marxism for several reasons. She reasserted the central aspect of Marxism, that capitalism is both the most productive system in human history and riven by inescapable contradictions. In terms of the modern world she was analysing, she made other vital contributions. Firstly, she stressed how capitalism always depends on state violence to help its expansion. Secondly, she asserted the inevitability of militarism and conflicts between states and she repudiated the possibility of peaceful development within the capitalist system itself. Her most important contribution, however, was to argue that imperialism is deeply embedded in the dynamics of capitalism itself. It is not a mistaken policy that can be corrected. It is an inescapable part of the system. Imperialism resulted from the ‘deep and fundamental antagonism between the capacity to consume and the capacity to produce in capitalist society’, which ‘periodically bursts out in crises and spurs capital onto a continual extension of the market’. [17] Luxemburg grasped more clearly than almost all her contemporaries that the fight against militarism and imperialism was inseparable from the struggle to overthrow capitalism. She fought for that understanding theoretically and she fought for it in practice by opposing the horrors of the First World War with all her energy and determination and ultimately paid with her life.